The Future of Local Commerce = Facebook + Foursquare + Yelp + Groupon

8 years

Editor’s note: The following guest post is by David Marcus, founder and CEO of Zong, a mobile payment provider for Facebook Credits, AT&T and hundreds of leading destination websites and mobile applications

There’s been much hype, crazy valuations, and overall market excitement about businesses that promise to unleash the power of the social graph, location, recommendations and group buying. Facebook’s latest valuation according to SecondMarket is now about $30 billion, Foursquare raised $20 million at a post-money valuation of $115 million while still at a pre-revenue stage, Yelp, short of selling for $550 million to Google, raised over $25 million at an undisclosed but very high valuation, and finally Groupon raised $135 million at a whopping $1.35 billion valuation. So besides their huge success with the investment community, and their users, what do these companies have in common, and what does all this have to do with disrupting Local Commerce?

In an August TechCrunch guest post, Alex Rampell, describes how Online2Offline commerce is a potential trillion dollar opportunity. The gist of it is that we spend most of our disposable income offline, in local stores, restaurants, and shopping malls. But companies like Groupon, Gilt, and other group buying and private sale startups are changing the money flow. People buy online, and redeem offline. But this is just the beginning of a perfect storm brewing that will change the way we discover, shop, and pay for things. Let’s focus on the main function each of these different startups provide to understand how bringing them together will ultimately disrupt multiple trillion dollar industries:

Facebook: provides the Social Graph, which is fast becoming a utility. Through its open platform, and APIs, we share more about our lives and our interactions online and on mobile every day.

Foursquare and Gowalla: provide location services and check-ins, along with game mechanics that motivate users to unlock badges, earn mayorships, and get discounts at local stores in the process.

Yelp: provides crowdsourced reviews of local businesses. Now also provides check-ins, and offers.

Groupon: provides discounted offers against a promise to increase sales and bring in brand new customers to local businesses.

The interesting thing here is that there’s a lot of overlap between the features offered by these companies. Recently, Facebook launched Places, a mobile geo-location service that mimics Foursquare local check-ins. Yelp also added check-ins, and recently rolled out Yelp Deals, a Groupon clone.

Considering that Local Commerce will be mostly mobile, one of these companies still must bring all of these features together, along with one-click payments (IMHO), to truly tap into the potential of all these disruptive technologies. In my mind, the ultimate product combines all these features in a mobile app. A user would launch the app, see what special deals are in her area (location + group buying), whom of her friends already bought the coupon/item (social graph), local reviews from friends (social graph + reviews), and then she could buy the desired coupon in one click on her handset. She could walk into the local business with a discount code, barcode, or maybe at some point in the future, an enabled RFID tag, and redeem what she just bought.

All of these companies, with the exception of Yelp, are at an early stage of their product development in this space. Facebook Places is lacking the gaming mechanics of Foursquare, the reviews of Yelp, and the local deals of Groupon. Foursquare is missing scale in its discounted offers. Yelp is missing the reach of the social graph, and the embedded payments. Groupon is lacking core social graph features that would give it better relevance through social shopping.

So which one of these companies will succeed in unleashing the power of Local Commerce by combining the right set of features with the appropriate on-the-ground salesforce? My bet is on Facebook to be first. They have a large advertising sales organization that could reach out to local businesses, already are supposedly testing offers on Places, they have de-facto more distribution and social graph access than any of the other companies, and finally they are building a true payments platform.

Groupon and Yelp also have a decent shot at it, but it will be tough to compete with Facebook’s distribution capabilities and ubiquity. In order to remain relevant, they will have to innovate and come up with original features. Foursquare’s future is probably going to be more challenging with more players entering their space, but it it could end up being bought (once again for founder Dennis Crowley) by Google, which is preparing to aggressively go after the local commerce opportunity.